U.S. Stocks Have Best Week of 2014 on Yellen, Earnings

By Lu Wang -
Feb 15, 2014

U.S. stocks rallied the most for a
week since December as comments from Federal Reserve Chair Janet
Yellen reassured investors about the strength of the economy and
corporate earnings exceeded estimates.

The Standard & Poor’s 500 Index (SPX) advanced 2.3 percent to
1,838.63 over the five days, posting its first back-to-back
weekly gains for the year and finishing within 10 points of its
all-time high. The Dow Jones Industrial Average increased 360.31
points, or 2.3 percent, to 16,154.39. Both gauges completed
their best week since Dec. 20.

“Earnings have come in fine and we’re seeing some activity
in mergers and acquisitions,” John Carey, a fund manager at
Pioneer Investment Management Inc., a Boston-based firm that
manages about $220 billion worldwide, said by phone. “There are
still some things inspiring people that stocks are the place to
be this year.”

Equities rose for the week as Yellen delivered her first
public remarks as Fed chair and pledged to maintain her
predecessor’s policies by scaling back stimulus in “measured
steps.” Economic growth has strengthened and there is “broad
improvement” in the labor market, she said, adding that only a
“notable change in the outlook” for the economy would prompt
the central bank to slow the pace of tapering.

Weather Impact

Data over the week added to evidence that severe winter
weather weighed on the economy. Retail sales unexpectedly fell
in January as inclement weather kept customers from auto
showrooms and stores while factory production declined by the
most since May 2009.

“The comfort came to the market when Janet Yellen said
there is not going to be any change in policies,” Omar Aguilar,
the San Francisco-based chief investment officer of equities at
Charles Schwab Investment Management, said in a phone interview.
The firm had $241 billion in assets under management as of Dec.
31. That shows “the Fed is confident that the economy can
sustain any potential issues in global growth,” he said.

Investors have dismissed weaker-than-forecast economic data
including January’s payrolls over the past two weeks, helping
stocks recover from their worst start of a year since 2010. The
S&P 500 had slumped as much as 5.8 percent since reaching a
record 1,848.38 on Jan. 15 as concern over Fed tapering fueled
an exodus in emerging markets. The index has since climbed 5.6
percent, paring its 2014 loss to 0.5 percent.

Fighting Back

“We seem to be fighting our way back toward those levels
near 1,850 on the S&P 500,” John Augustine, chief market
strategist at Cincinnati-based Fifth Third Bancorp, said in a
phone interview. His firm oversees $27 billion. “Those levels
may be in play until we get a rebound in the economy and
earnings.”

Of the 400 companies in the S&P 500 that have reported
earnings so far, 75 percent beat analysts’ profit estimates
while 64 percent exceeded on sales, data compiled by Bloomberg
show. Wal-Mart Stores Inc. and Hewlett-Packard Co. are among
more than 40 companies in the S&P 500 scheduled to announce
financial results in the coming week.

The Chicago Board Options Exchange Volatility Index dropped
11 percent over the week to 13.57. The gauge of S&P 500 options
known as the VIX (VIX) is down 1.1 percent this year.

Industry Returns

All 10 S&P 500 groups rose at least 1.6 percent for the
week. Utility, health-care and raw-materials producers rallied
more than 3 percent to lead the gains.

Goodyear Tire soared 14 percent, the most in the S&P 500,
to $26.76. The tire manufacturer reported adjusted fourth-quarter earnings higher than analysts’ estimates and reaffirmed
its financial targets for 2014 through 2016.

Cliffs Natural climbed 11 percent to $23.16. The iron-ore
miner’s profits topped forecasts after it cut operating costs.
The stock rose earlier in the week after saying it will idle a
Canadian mine and reduce spending at a second operation in the
country. Casablanca Capital LP, the company’s fourth-largest
shareholder, has pressed Cliffs to spin off foreign assets and
double its dividend.

Cable Deal

CBS jumped 7.4 percent to a record $64.96. Programming
deals helped the owner of the most-watched television network
beat profit estimates. The company expanded its stock-buyback
plan by $1.5 billion.

Time Warner Cable climbed 7.9 percent to $146, the highest
level ever. The surprise deal combines the two largest U.S.
cable companies and creates a bulwark against competition from
phone and satellite providers. Comcast slipped 1.7 percent to
$53.70.

Applied Materials (AMAT) advanced 10 percent to $18.96. The
largest supplier of semiconductor-manufacturing equipment
forecast fiscal second-quarter sales growth of as much as 10
percent as memory chipmakers boost spending on factory upgrades.

Apple gained 4.7 percent to $543.99. Activist investor
Icahn dropped his campaign urging the company to buy back $50
billion of stock this year, after Apple stepped up repurchases
and a proxy-advisory firm criticized his efforts as
micromanagement.

Sprint, TripAdvisor

Sprint Corp. (S) rose 4.7 percent to $8.40. The third-largest
U.S. wireless carrier reported a narrower loss and better-than-predicted sales after the company shed fewer subscribers than
analysts had projected.

Nvidia Corp. rose 13 percent to $17.91. The maker of
graphics processors forecast first-quarter sales that may exceed
some analysts’ predictions as demand for cards used in high-end
gaming computers helps make up for a drop in laptops.

Occidental Petroleum Corp. (OXY) added 5.7 percent to $95.76. The
largest oil producer in the continental U.S. said it will split
its operations in California into a separate publicly traded
company in one of the final steps of a breakup plan.

ConAgra Foods Inc. dropped 4.8 percent to $29.36 after
cutting its year-end profit forecast, reflecting a longer time
frame to restore its private brands segment to planned levels of
operating profit, as well as weaker-than-anticipated volumes in
consumer foods.

LinkedIn (LNKD) Corp. tumbled 11 percent to $186.13. The
professional-networking site has plummeted 17 percent since Feb.
6, when LinkedIn forecast first-quarter sales that fell short of
analysts’ estimates as growth slows in all three of its
businesses.